The client requires a guaranteed minimum offtake.

Who wants minimum offtake and what they pay for it

The headline says "the customer wants," but in practice, the requirement goes both ways. A supplier will request it when they have to build a production line, expand a warehouse, or reserve inputs from their own supplier for a specific customer; a guaranteed volume is a way for them to repay the investment, even if the customer later buys elsewhere. Conversely, a customer will offer it when they need assurance that capacity will be available for them and want a better price in return than a customer who comes and goes as needed.

In both cases, minimum offtake is an exchange of risk for consideration. The party that commits to take or pay assumes the demand risk; the other party provides an investment, capacity reservation, a favorable price, or a combination thereof in return. If this consideration is missing from the contract or is only implied, the customer has a stronger argument in a dispute that it is a penalty for breach, not a price for performance.

For a company's management, this leads to the first decision: how much of the demand risk the company is willing to assume and what it wants in return. This is typically decided based on three figures – the cost of the investment or reserved capacity, the share of consumption the contract is intended to cover, and the time horizon for which the company can commit. If the minimum offtake is related to the supply of a turnkey technology, also read Buying a turnkey production line, where we discuss acceptance and liability for a defective machine.

Six provisions without which take-or-pay doesn't work

A minimum offtake clause is never written in a single sentence. In practice, it consists of six interconnected provisions, and a weakness in any one of them undermines the others.

Reference volume and period

The foundation is an unambiguous volume and an unambiguous period for which it is evaluated. Units (tons, pieces, MWh, percentage of a plan), rounding methods, and whether the volume is calculated per calendar year, contract year, or a shorter period are often disputed. The shorter the evaluation period, the less room the customer has to smooth out fluctuations – and the sooner payments are due. The period is therefore not a technical detail; it is a setting that determines who bears the risk of seasonality.

If the relationship is based on a framework agreement and individual orders, it must be clear whether the minimum offtake obliges the customer to place orders or merely to pay for the difference. We discuss the difference between a framework and an individual contract in our article on framework agreements under the Civil Code; for take-or-pay, it is essential that an order that never arrives does not mean the obligation never arose.

What exactly is paid for the untaken volume

This is where the legal nature of the entire clause is decided. There are two basic structures. First: the customer pays an agreed amount for the reserved capacity regardless of offtake, and the quantity actually taken is credited against this amount. Second: the customer has an obligation to take a certain volume, and in the event of a breach, pays an agreed rate for the difference.

Commercially, both structures have a similar outcome, but not legally. The second option is a payment tied to a breach of obligation, which constitutes a contractual penalty (Section 2048 of the Czech Civil Code) with all the consequences we discuss in the section on legal limits. The first option is a price, which a court generally does not moderate, but which must be structured from the outset as payment for a specific performance – capacity that is actually available. The choice between a price and a penalty should be a conscious decision, not a consequence of how a sentence happens to be worded.

The difference also has a tax aspect, which is not determined by the label on the invoice. The Court of Justice of the EU, in its judgments in MEO (C-295/17) and Vodafone Portugal (C-43/19), concluded that amounts paid upon early termination of a fixed-term contract are consideration for a service and thus subject to VAT. For take-or-pay, there is therefore a risk of a tax assessment for both parties, and the regime must be verified with a tax advisor.

In practice, the amount of the payment is differentiated based on what it is intended to cover: only the supplier's fixed costs (depreciation, reserved capacity), or also lost margin. The rate for an untaken unit is usually lower than the full price; how much lower depends on whether the supplier can sell the untaken volume elsewhere.

Make-up and carry-forward

In long-term relationships, a strict take-or-pay is usually softened by two mechanisms: carry-forward, where offtake above the minimum in one period reduces the commitment in the next, and make-up, where a volume that has been paid for but not taken can be taken in subsequent periods without further payment. Both should have a time limit after which they expire, and a rule for the final year of the contract when there is nowhere to carry forward to.

Flexibility band

The customer usually requests a band within which the volume can fluctuate without penalty (for example, plus or minus a certain percentage of the plan), and the right to adjust the plan for the next period with advance notice. The supplier is generally more willing to agree to upward flexibility than downward; the lower limit is what covers the investment.

Force majeure and change of circumstances

The force majeure clause must explicitly state what happens to the minimum volume when the customer is unable to take delivery. The situations you want to cover – your own production outage, a sales ban, transport disruption – need to be listed; the statutory definition of force majeure is narrower, and the mere absence of fault is not enough to fall under it. A general formulation like "the parties are not liable for delays caused by force majeure" is insufficient because take-or-pay is not a delay, it is a payment obligation. A specific provision is also required for a change in market conditions, which we discuss in the section on legal limits.

End of the relationship

The contract should answer three questions: what happens to the untaken volume upon normal termination, how the commitment will be settled upon early termination, and whether there is an exit payment by which the customer can buy their way out of the commitment. The exit payment is the most valuable provision of the entire clause for the customer, and the supplier will usually only allow it in an amount that covers the unamortized part of the investment.

The other side of the equation: what the supplier guarantees the customer

A mutual take-or-pay means that the supplier bears mirror obligations. If the customer pays for capacity, that capacity must actually be available – and this is not a given that the law would ensure, but a provision that must be stated in the contract.

The first of these is a guarantee of availability, in practice referred to as deliver-or-pay: the supplier will deliver the volume that the customer requests within the plan, and in case of non-delivery, pays a rate per undelivered unit or covers the difference in price at which the customer procures a substitute supply elsewhere. Without this mirror provision, the customer is left with only a general claim for breach of contract, meaning they have to prove damages instead of invoicing an agreed rate.

The second is the price mechanism. A minimum offtake for several years without indexation or a rule for price adjustment shifts the entire price risk to one party; the standard is a link to an input index, a commodity price, or regular price negotiations with a safeguard in case the parties fail to agree. The third is information and planning obligations – the customer provides an offtake plan in advance, the supplier reports capacity limitations. Without them, every dispute over untaken volume becomes about who knew what and when.

Pre-signing checklist

Before the clause is signed, each participant should answer the following questions. The list is general; which answers are decisive in your case depends on which of the two parties is investing and how long the commitment is intended to last – the lawyers at ARROWS law firm assess this for each contract individually.

• Is it clear in what units and for what period the minimum offtake is evaluated, and who performs the evaluation?

• Is the payment for untaken volume structured as a price for capacity or as a penalty for breach? Does the rest of the contract (invoicing, VAT, accounting) correspond to this?

• Is there a make-up or carry-forward provision, and does it have a time limit? Is the final year of the contract addressed?

• Does the force majeure clause explicitly state what happens to the minimum volume?

• Does the supplier bear a mirror obligation of availability with a penalty?

• What percentage of the customer's total consumption does the contract cover and for how long? Does the market share of either party exceed the threshold at which competition law becomes a concern?

• Is there an exit payment, and is its amount derived from the unamortized investment, not from the remainder of the contract term?

What the other party commonly proposes and what is a warning sign

Companies that handle long-term supply well include both sides of the clause and a table of volumes by year in their draft contract from the start; the rate for untaken volume is negotiated, but its existence is not. In contrast, there are five signs that identify the other party's proposal as one-sided.

The first is a minimum offtake without any mention of investment or capacity. When a supplier requests a commitment but cannot say what it covers, they are buying certainty of revenue at the customer's expense; the question of what exactly this volume finances should be raised at the first meeting.

The second is a rate for untaken volume equal to the full price – the supplier would receive the full price without delivering, and could sell the untaken volume elsewhere. If such a payment is, by its substance, a contractual penalty, a high rate is a prime candidate for judicial reduction and the other party will usually abandon it in negotiations as soon as it is brought up.

The third sign is the absence of a make-up provision: a proposal that does not allow for carry-forward or later offtake of the paid-for volume shifts all seasonality and demand fluctuations onto the customer.

The fourth is exclusivity hidden in the volume. A minimum offtake set at the level of the customer's entire consumption is effectively a ban on buying from anyone else, it's just harder to spot. Agreements whose object or effect is the distortion of competition are prohibited by law (Section 3 of the Act on the Protection of Competition) – however, a negligible impact on competition is not prohibited, and the law also provides for an individual exemption.

Such a commitment is treated similarly by Commission Regulation (EU) 2022/720 on vertical agreements. We describe how exclusivity is assessed in distribution in the article Distributor breached exclusivity or is selling via a marketplace.

The fifth is a unilateral right to change the plan or price. If only one party can change the offtake plan, or if the supplier can change the price without limit, the minimum offtake loses its economic sense for the other party, and all that remains is an obligation to pay.

Where freedom of contract ends

The Czech Civil Code does not recognize take-or-pay as a concept; the clause is composed of several legal institutes, and different limits apply to each. Four are essential for a company's management to decide.

Contractual penalty and its reduction

If the payment for untaken volume is tied to a breach of the obligation to take delivery, it is legally a contractual penalty. For the supplier, this means they can demand it even if they have suffered no damage; for the customer, it means they can ask a court to reduce it, and the court can reduce it down to the amount of damage the supplier actually incurred (Section 2051).

What is decisive is not how high the rate is in the contract, but how much the supplier ultimately demands. The Grand Chamber of the Supreme Court, in its judgment ref. no. 31 Cdo 2273/2022 of 11 January 2023, concluded that the court assesses the reasonableness of the specific claim and also considers what happened after the breach. If the supplier sold the untaken volume elsewhere, this can be an argument against the full rate – the court considers subsequent circumstances if they originate from the breach and were foreseeable.

That the court looks at the substance of the provision, not its name, is shown by a dispute over the supply of compressed natural gas, which the Supreme Court concluded with its decision ref. no. 23 Cdo 3378/2023 of 19 December 2023. The contract called the payment a "loss on sales margin," but the courts assessed it as a contractual penalty and did not find it unreasonable.

In doing so, they weighed the importance of the secured obligation, i.e., the offtake of the agreed quantity, the ratio of the penalty to the price for full offtake, and the documented purpose of the provision – the return on investment in a filling station. These are the circumstances that courts weigh in offtake commitments even today.

However, the benchmark from that dispute cannot be applied mechanically. The contract was from 2009 and was assessed under the former Commercial Code, where reasonableness was evaluated exclusively at the time the penalty was agreed upon, and subsequent circumstances were not considered. Today, the procedure of the Grand Chamber described above applies, so the case provides neither a safe percentage nor the current methodology for moderation.

An agreed penalty also has another side: the supplier cannot automatically add compensation for damages from the same breach to it (Section 2050). Anyone who wants compensation for other costs in addition to the rate for untaken volume must state this explicitly in the contract.

A price for reserved capacity will not face moderation as a contractual penalty, but it is not without limits. A court will consider a provision that is clearly contrary to good morals to be invalid even without a motion (Section 588). In the case of an extreme disproportion between the payment and the capacity actually reserved, this path remains open to the customer.

Change of circumstances and force majeure

A market collapse in itself will not release the customer from their obligation. The law provides a defense only in a narrow case: in the event of a change in circumstances that creates a particularly gross disproportion between the parties, one can demand the reopening of negotiations on the contract – not postpone performance (Section 1765 of the Czech Civil Code). The customer must prove that they could not have reasonably foreseen or influenced the change.

If the parties do not reach an agreement within a reasonable time, a court may amend or terminate the obligation. The customer has only a short time to assert this right with the other party: the law provides for two months from the moment they must have discovered the change (Section 1766). Once the customer has assumed the risk of a change of circumstances in the contract, they lose protection under both provisions and should negotiate a contractual adjustment of the volume in return.

The situation is similar with force majeure. Statutory liberation relieves of the obligation to compensate for damages, not the obligation to pay (Section 2913(2)). It therefore does not apply to the rate for untaken volume on its own; the customer can only defend against it if the force majeure clause explicitly states what happens to the minimum volume.

Exit payment and statutory right of withdrawal

The statutory right of withdrawal (Section 1992) only works until the parties begin to perform; it cannot be used in an ongoing supply relationship. An exit from the commitment therefore needs its own contractual mechanism – typically a termination linked to a settlement payment or a separate provision on early termination. There are more forms, but the statutory right of withdrawal is not one of them in an ongoing relationship. Without such a provision, the nature of the payment will be disputed, and the way out that the customer was counting on may not exist.

Competition law

An offtake commitment for most of a customer's consumption is treated by competition law in the same way as a non-compete clause. According to the EU's Vertical Block Exemption Regulation, a commitment to purchase more than 80 percent of a given good from a supplier is a non-compete obligation. It falls outside the block exemption if it is agreed for an indefinite period or for a period longer than five years, and the exemption only applies if the market shares of both parties are below 30 percent.

The five-year limit has its own exceptions. For example, it does not apply where the customer sells from premises or land owned or leased by the supplier, for the duration of the customer's use. Commitments that are merely tacitly renewed after five years are also assessed separately.

However, falling outside the block exemption does not in itself mean prohibition or invalidity. It is assessed individually whether the agreement distorts competition at all, whether it has only a negligible impact, and whether it meets the conditions for an individual exemption (Sections 3 and 4 of the Act on the Protection of Competition). For a dominant supplier, an assessment under Section 11 is added; however, take-or-pay itself is not an abuse of a dominant position.

Risks of an offtake commitment for both supplier and customer

How to negotiate a minimum offtake

The procedure below corresponds to a typical negotiation for long-term supplies. How long and in what order to conduct it is determined in your case by the size of the investment the offtake is meant to cover and the share of the customer's total consumption the contract covers – that's why the lawyers at ARROWS law firm assess each clause individually, and this procedure describes the order of negotiation, not what should be in your text.

It starts with an internal calculation, even before the first meeting. The supplier calculates what annual volume will repay the investment and over what horizon; the customer calculates what share of consumption they are willing to commit and what price will compensate them for that commitment. These two numbers are not said aloud at the meeting, but without them, it is impossible to negotiate the rate.

The second step is a term sheet that includes both sides of the clause. Before the full contract, the volume, period, payment structure, make-up, availability guarantee, and exit are agreed upon on a single page. What is not in the term sheet will be negotiated again, and with more difficulty, in the full contract. In parallel, the share of consumption, market shares, and length of commitment are verified; if it turns out that the provision exceeds the limits of the block exemption, the volume or term is changed now, not after signing.

Only then is the text of the clause written. It is usually written by the party with the stronger position, and the other party provides comments; negotiations are conducted in pairs – a shorter commitment for a higher rate, a wider flexibility band for a longer term, an exit payment for assuming demand risk.

After signing, both parties set up a system for recording offtake according to the contract: who reports, when it is evaluated, how the untaken volume is invoiced. Most disputes over take-or-pay begin because the parties' numbers don't match after two years. If the other party is based abroad, a choice of law and dispute resolution venue is added; we regularly handle offtake commitments with a foreign element. The preparation and negotiation of long-term supply contracts are handled by the lawyers at ARROWS law firm as part of our contracts and negotiations service.

Before you sign: three decisions for company management

The first decision is commercial: how much of the demand risk the company will assume and what it will get in return. The second is structural: whether the payment for untaken volume will be a price for capacity or a contractual penalty, and the entire rest of the contract will be adapted accordingly. The third is temporal: for how long and for what share of consumption the company can commit for the provision to be viable both commercially and from a competition law perspective.

The legal framework limits these decisions but does not replace them. A court can reduce a contractual penalty, assuming the risk of a change of circumstances excludes statutory protection, force majeure does not automatically transfer to a payment obligation, and a commitment for most of consumption for over five years falls outside the block exemption.

The lawyers at ARROWS law firm prepare and negotiate offtake commitments for suppliers and customers in manufacturing, energy, and distribution, and before signing, they will review the payment structure, the impact of force majeure, and competition law limits. If you have a draft clause on the table, send it to us at consultation@arws.cz and we will tell you where it commits you more than it has to.